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Kent Holland, J.D.
ConstructionRisk, LLC

Where a homeowner sued an architect for negligent misrepresentation and violation of the Consumer Protection Act (CPA) based on the fact that the architect prepared and submitted a certification to the local government as required by law, attesting that a wastewater system was installed in accordance with permit conditions and performed successfully, the appellate court held the architect was not liable for economic losses resulting from the failure of the system.  The court did a thorough analysis of the requirements of the Restatement of Torts, Section 552, for finding a defendant liable for negligent misrepresentation and concluded that the government and not the homeowner was the intended recipient of the certificate, and therefore there could be no intended reliance by the homeowner.

Liability might have been imposed on the architect, however, under a different subsection of the Restatement if the homeowner could show it was with the class of persons for whose benefit the duty to file the certificate was created. Homeowner, however, failed to prove that it actually received and relied on the certificate when purchasing the home. Moreover, there was no CPA liability since the standard for imposing that liability is that a person be directly involved in the transaction that gives risk to the claimed liability, and here the certificate was never prepared for or given directly to the homeowner by the architect. Glassford v. Dufresne & Associates, 2015 WL 3634591 (Vermont 2015).

This certification was made pursuant to 10 V.S.A. § 1973, which requires a permit for “constructing, replacing, or modifying a potable water supply or wastewater system,” id. § 1973(a)(3), and imposes the certification requirement as follows:

“(e) No permit issued by the Secretary shall be valid for a substantially completed potable water supply and wastewater system until the Secretary receives a statement from an installer or licensed designer certifying that, in the exercise of his or her reasonable professional judgment, the installation-related information submitted is true and correct and the potable water supply and wastewater system:

(1) were installed in accordance with:

(A) the permitted design and all permit conditions; or

(B) record drawings and such record drawings are in compliance with the applicable rules, were filed with the Secretary, and are in accordance with all other permit conditions;

(2) were inspected;

(3) were properly tested; and

(4) have successfully met those performance tests.

Id. § 1973(e).

The architect sent the state agency the certification required by the statute. Prior to the homeowners closing on the house purchase, the homeowner’s attorney requested and received a copy of the certification so he could complete the title work necessary for settlement.

The homeowners asserted that the system failed because the soil placed over the system was improperly graded. The architect argued, arguing that the reason for the failure was that the house was too large and the homeowners operated a daycare center that added to the wastewater entering the system.

In any event, the trial court found that the homeowner was entitled to rely on the certificate and that the architect could be liable. The appellate court reversed that decision, holding that it would adopt the definition of the common law tort of negligent misrepresentation, in the Restatement (second) of Torts, § 552, but that the architect could not be found liable under that section since the homeowners failed to prove that they actually relied on the certificate prepared by the architect.

Section 552 of the Restatement provides:

“(1) One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance the information, if he fails to exercise reasonable case upon or competence in obtaining or communicating the information.

(2) Except as stated in Subsection (3), the liability stated in Subsection (1) is limited to loss suffered

(a) by the person or one of a limited group of persons for whose benefit and guidance he intends to supply the information or knows that the recipient intends to supply it; and

(b) through reliance upon it in a transaction that he intends the information to influence or knows that the recipient so intends or in a substantially similar transaction.

(3) The liability of one who is under a public duty to give the information extends to loss suffered by any of the class of persons for whose benefit the duty is created, in any of the transactions in which it is intended to protect them.”

As explained by the court, “plaintiffs were not the intended recipient of the certificate. The certificate was provided to the Agency for determining compliance with the permitted design and was not intended for use by homebuyers in deciding whether or not to effect a purchase.” The homeowner was therefore not able to rely upon the certificate and could not recover under Subsection 2 of Section 552 of the Restatement.

Turning to subsection (3) of Section 552, the court considered the public duty exception that could give rise to liability to a “class of persons for whose benefit” the public duty to give the information exists. Here, the court found that the homeowners fell within the class of persons for whose benefit the statutory duty to provide the information was created. But because they failed to demonstrate actual or direct reliance on the certificate, they had no cause of action against the architect.

 

About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia,  with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk.com Report, Vol. 18, No. 1 (January 2016).

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